Spend Data Management

Why this tutorial?

n Suppliers, industry analysts and the trade press have paid a lot of attention to the importance of organizational data n Systems vendors indicate that systems may provide ease of decision making based on organizational spend data n This tutorial on Spend Data Management attempts to provide clarity as to what spend data can do for an organization and the steps that an organization can take in order to make the most of their data n Companies know that organizational data is important but the large amount of information makes it difficult to know where to start

What is Spend Data Management (SDM)?

n Spend Data Management (SDM) is: The process of aggregating, cleansing and analyzing corporate spending data in order to reduce costs and improve operational performance The process of transforming data into business intelligence An on-going process versus a one-time initiative

What is Spend Data Management?

What is the benefit of SDM?

n An improved understanding of how much an organization spends, with whom and for what products/services n Research has found that organizations who actively pursue SDM strategies have achieved1: 2 to 12% reduction in material costs through informed sourcing 50% reduction in off-contract spending 20 to 70% reduction in inventory levels 5 to 50% reduction in inventory costs 20% decrease in redundant or unnecessary part introductions n Means of measuring and comparing contractor performance n SDM gives companies the acumen required to identify hard-dollar savings opportunities, make informed decisions and develop first-rate business strategies
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1. Aberdeen Group, Spend Data Management: Unlocking Value Across the Extended Enterprise, November 2003

Key Steps in SDM

Step 1. Define objectives and goals

n Data Management can be a time consuming and difficult process and requires Senior Management buy-in from the outset n Spend Data Management initiatives typically fall within the purchasing department's responsibility, especially if an organization has a centralized purchasing department n Answering the following will help develop a data management and analysis strategy: Why is procurement and travel data important? Who are the stakeholders for procurement and travel data? What are you trying to effect through data analysis? How does reporting help achieve program objectives and create value for an organization? n In order to sell the concept to Senior Management it is imperative to outline the strategy behind data consolidation Develop facts and figures that are relevant to your audience Unit Costs, % of Sales, % of Revenue, Cost per headcount Benchmarking is important to show progress
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Define objectives and goals (contd)

n Selecting the appropriate suppliers and/or categories for inclusion in the SDM process is an important consideration n SDM should be considered for: preferred and/or heavily used suppliers (by number of transactions or spend volume) important spend categories

Step 2. Obtain data from all sources

Obtain data from all sources (contd)

n It is not necessary to re-invent the wheel.
Make use of applications that you are familiar with and comfortable using Take advantage of exception reporting generated by card providers that quickly highlights spend outside of corporate purchasing policies

n Microsoft Excel is a powerful tool that allows for easy consolidation and manipulation of spend data into information that you can use. n Below is a simple consolidation of data that shows how many suppliers are used per spend category and total spend per category.

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Step 3. Ensure data accuracy and completeness

n An organization needs to see the complete picture of corporate spend to make informed decisions and develop effective strategies n Critical information is often dispersed between multiple business systems and units, and may be customized to meet unique requirements of a local site or particular task: Different areas of the organization use different naming conventions or part numbers for ordered items This is especially true for organizations that have recently completed any Marketing & Advertising activities create a useable classification system or naming convention that works for your organization n On a going forward basis companies should develop a standard methodology for naming suppliers, parts and items that it purchases in order to facilitate the SDM process and generate credible data: This standard should be shared among all stakeholders
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Step 4. Analyze Data

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Analyze data (contd)

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Analyze data to reduce number of suppliers

n Analysis at a high level may lead to a reduction in the number of suppliers and consolidation of volume

n The above table shows that on average each supplier in the Copier category receives approximately $11,357 in sales per year n If the number of suppliers is reduced by 1/3, remaining suppliers volume would increase by 50% thereby increasing an organizations buying power and ability to negotiate better pricing and service n Other aspects to consider when consolidating suppliers include customer service, return policies, delivery time lines, service level agreements, and the ability of the supplier to introduce and deliver new and innovative products and services 14

Analyze data to lower average transaction costs

n Organizations may choose to deepen their analysis in a particularly important category

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Determine how Data should be presented

n Determine the reporting period that is most suitable for your audience Annual / Quarterly / Monthly n Determine granularity of reports Business unit / Geography Global view

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Delivering results to Senior Management

n As SDM activities mature, results can be presented to Senior Management that show trends in:

-Unit costs -% of Sales, % of Revenue -Inventory turnover -Cost per headcount (CPH)

-Average Ticket Price (ATP) -Cost per transaction (CPT) -Cost per mile (CPM) -Room nights

n Reporting results to Senior Management may: Showcase all progress including costs savings to the organization encourage on-going support for Spend Data Management n Spend Data Management can deliver expanded value and a competitive difference for an organization

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Conclusion
n Spend Data Management is an important on-going process that helps organizations reduce costs and improve operational performance n Complete and accurate data is necessary in order to make high-quality decisions n Clearly defined objectives, Senior Management buy-in and constant communication about progress are key to a successful SDM function

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